Why Is Form 8891 No Longer Required by the IRS?
A tax treaty update streamlined deferrals on Canadian retirement plans, making Form 8891 unnecessary. See which reporting requirements remain for U.S. taxpayers.
The Internal Revenue Service (IRS) no longer requires filing Form 8891, “U.S. Information Return for Beneficiaries of Certain Canadian Registered Retirement Plans.” The form was made obsolete for tax years after 2012. Its previous function was to allow U.S. citizens and residents to make a formal election related to the tax treatment of earnings within their Canadian retirement plans.
The Purpose of the Obsolete Form 8891
Form 8891 was historically used by U.S. persons to make a special election under the United States-Canada income tax treaty. This election allowed them to defer paying U.S. income tax on the growth occurring inside a Canadian Registered Retirement Savings Plan (RRSP) or a Registered Retirement Income Fund (RRIF). Without this formal declaration, the undistributed income within the plan could have been subject to U.S. taxation annually. Filing Form 8891 ensured that the retirement savings could grow tax-deferred from a U.S. perspective, aligning the tax treatment between the two countries.
Why Form 8891 Was Eliminated
The requirement to file Form 8891 was eliminated due to changes in the U.S.-Canada income tax treaty. The Fifth Protocol to the treaty, along with IRS guidance in Revenue Procedure 2014-55, streamlined the process for U.S. taxpayers. These updates made the tax deferral on income earned in RRSPs and RRIFs an automatic benefit for eligible individuals, removing the need for a formal election. Because the deferral is now automatic, the IRS determined this change would reduce the reporting burden on taxpayers, so for tax years after 2012, the election is considered automatically made.
Current U.S. Reporting Requirements
While Form 8891 is no longer necessary, the obligation to report the existence of a Canadian retirement plan to the U.S. government continues through other filings. These reporting requirements are separate from the issue of income tax deferral and focus on foreign asset disclosure.
One primary reporting tool is FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR). This form must be filed electronically with the Financial Crimes Enforcement Network. An FBAR is generally required if the aggregate value of a U.S. person’s foreign financial accounts, including an RRSP or RRIF, exceeds $10,000 at any point during the calendar year.
A separate requirement exists under the Foreign Account Tax Compliance Act (FATCA), which is reported on Form 8938, Statement of Specified Foreign Financial Assets. This form is filed with the individual’s annual income tax return. The filing thresholds for Form 8938 are higher than the FBAR and vary based on filing status and whether the taxpayer resides in the United States. For example, for a single individual living in the U.S., the threshold is met if the total value of specified foreign assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the year.